White House to banks: Start lending

The White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start making more loans.

“What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House press secretary Dana Perino said.

Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government.

“They will be watching very closely, and they're working with the banks,” she said.

Never miss a local story.

Sign up today for a free 30 day free trial of unlimited digital access.

Anthony Ryan, the Treasury Department's acting undersecretary for domestic finance, made the same point in a speech in New York before financial executives.

“As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy,” Ryan told the annual meeting of the Securities Industry and Financial Markets Association. “It is in a strengthened institution's best financial interest to increase lending once it has received government funding.”

Said Perino: “The way that banks make money is by lending money. And so, they have every incentive to move forward and start using this money.”

There has been some evidence of easier lending, Perino said. But it's not enough to calm stock markets or help small businesses that depend on a free flow of credit, not just to expand but to maintain operations through making payroll or financing inventories.

The government is making efforts on several fronts to thaw the frozen credit markets and combat the worst financial crisis to hit the country since the 1930s. But so far, the efforts have shown little in the way of results. Libor, the London Interbank Offered Rate, a key goalpost for international lending, edged down only marginally on Monday and remains at elevated levels.

Under the authority of the $700 billion financial bailout plan approved by Congress and signed by President Bush earlier this month, the administration also plans to dole out $250 billion to banks in return for partial ownership.

The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country's largest banks this week. Another $125 billion will go to other banks.